COVER STORY

The World In Microcosm

The all-out war between power companies and EPA has become the symbol—and the center—of the national debate over the role of government.

What’s at stake: A 1995 Earth Day protest.(JOYCE NALTCHAYAN/AFP/Getty Images)

CLARIFICATION: The Environmental Protection Agency denies that it has delayed the rollout of carbon rules as a concession to industry; instead, it cites the need for careful study to ensure the rules are properly written.

Spring and summer 2009 was a great stretch for President Obama’s energy and environment team. That May, the president struck a historic deal with the nation’s auto industry; after decades of fighting, companies like GM and Ford agreed to dramatically ramp up their mileage standards, slashing tailpipe pollution and paving the way for a new generation of hybrid and fuel-efficient cars. In June, the House passed a historic cap-and-trade bill to slow climate change, cutting a slew of deals to get the grudging buy-in of coal-state lawmakers and of power companies. Its eventual passage in the Senate seemed all but assured.

Meanwhile, the head of the Environmental Protection Agency, Lisa Jackson, was preparing to roll out an unprecedented number of major new pollution-control regulations for the nation’s 600 coal-fired power plants—many of which had for decades been spewing unregulated toxins linked to lung disease, birth defects, cancer, asthma, and other major illnesses. The new rules weren’t Jackson’s or Obama’s idea. Most had been piling up at EPA for nearly 20 years, and they would soon hit court-ordered deadlines.

But Jackson and Gina McCarthy, the assistant administrator for clean air—both veterans of federal and state environmental work in the Northeast—knew what political fury polluting industries can unleash when confronted with new regulations. The two women wanted to preempt a revolt if they could. So they invited top executives from the biggest power companies in the country—among them Duke Energy, Constellation Energy, American Electric Power, Southern Co., Exelon, NRG Energy, Dominion, and Progress Energy—to informal roundtable meetings at EPA’s Washington headquarters to let them know what to expect and maybe even to reach some kind of grand bargain, similar to the deal with automakers.

McCarthy, a straight-talker with a crop of steel-colored hair, a thick South Boston accent, and a ready sense of humor, quickly won the respect of the industry titans—even as some of them cringed at what they heard. “She did her best to tell us what was coming,” said Mike Morris, CEO of American Electric Power. “That was fair. She said, ‘We’ve got court orders, and we’ve got to comply with them.’ She said, ‘This is going to happen. It’s coming. Don’t think it isn’t happening.’ And it was clear that they intended to be aggressive. More aggressive than the EPA had ever been.”

“We were finally beginning to grasp the magnitude of what they were going to do.”--American Electric Power CEO Mike Morris

McCarthy showed the CEOs a timeline of the upcoming rules. By the end of 2009, EPA would propose tough standards on coal-plant emissions of ozone, a smog-causing pollutant directly linked to asthma. In the first half of 2010, the agency would restrict emissions of sulfur dioxide and nitrogen oxide, toxic coal byproducts linked to asthma and lung disease. The following year, it would implement a “Good Neighbor” rule, forcing coal plants to cut pollution that contributes to health and environmental damage across state lines. It would follow, in November 2011, with an order for coal-fired power plants to discharge 91 percent less mercury. A 2012 rule would limit blasts of particulate matter, the microscopic chunks of soot that spew from coal plants’ smokestacks; the soot can lodge in the lungs and contribute to respiratory sickness and premature death.

Slowly, said Morris, “we were finally beginning to grasp the magnitude of what they were going to do.”

Instead of galvanizing the companies to ink a collective deal with EPA, the coming regulations split the industry. The rules would hit owners of old coal-powered fleets hardest, so utilities that relied on cleaner sources of energy—such as nuclear power and natural gas, which together generate nearly 40 percent of the nation’s electricity but no dangerous pollutants—thought the new rules would give them a competitive edge. Meanwhile, plenty of coal-burning companies had already invested in the technology to clean up their pollution (some because of state law, some because they knew the federal rules would be coming some day). Why reward the stragglers? By the end of 2009, it was clear that there would be no deal. Jackson and McCarthy prepared to roll out the rules without the cooperation of the coal companies.

At the same time EPA was cranking up its regulatory regime, Republicans were readying their own antiregulatory agenda. By the middle of 2010, a tea party-fueled charge against government regulation was roaring toward Washington—on a headlong collision course with the agency that would become the poster child for expanded government control. The resulting clash reverberated throughout Washington and the nation—and the aftershocks won’t stop for years to come.

Once they determined to fight the new rules, coal companies banded together with the Republican Party to strategize, and the 2010 midterm elections offered the perfect battleground. The companies invested heavily in campaigns to elect tea party candidates crusading against the role of Big Government. Industry groups (like the U.S. Chamber of Commerce), tea party groups with deep ties to polluters (like Americans for Prosperity), and so-called super PACs (like Karl Rove’s American Crossroads) spent record amounts to help elect the new House Republican majority.